Areas of Construction
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Contract formation-Types of construction
Lump-sum contracts-In a lump-sum or
fixed price contract, the prime contractor agrees to
complete the project, as described in the contract documents,
for a fixed price. This may be a total, lump-sum price
for the job, or it may have a fixed price per unit for
each of several items of work, so that although the
price per unit is fixed, the total cost of the job will
depend of the amount of work that must be built.
Cost-plus contracts-A cost-plus contract
provides that the contractor is reimbursed by the owner
for all construction costs, plus an amount to compensate
the contractor for its overhead and another amount as
the fee. The fee many be a percentage of the contract
price or a fixed amount.
Cost-plus with guaranteed maximum price-In
a guaranteed maximum price contract, the owner reimburses
the contractor for costs, overhead, and fees, as in
a cost-plus contract but stops paying once the guaranteed
maximum contract price is reached.
Breach of contract- A breach of contract
is when there is a failure to perform according to the
terms of the contract. Typical breaches involve disputes
over interpretation of contract terms. Differing interpretation
by each party are often caused by ambiguities when the
contract terms do not clearly define each party’s
obligations, or discrepancies and conflicts within the
Default- When any of the parties involved
in a contract have failed to perform.
Termination- Owners Right to eject
contractor from job. In addition to removing the contractor
from the jobsite, the owner may take possession of the
unfinished work and of all contractor’s tools,
, construction equipment and machinery at the site.
The owner may use or authorize third party contractors
to use the tools for completing the project. When this
happens, the Owner and any replacement contractors may
not be liable to the terminated contractor for the cost
or value of any property or equipment used in the course
of the project completion.
Payment disputes- Payment disputes
are often the result of other factors such as scope
of work, value of work, extra work, change orders or
even under-funded or poorly managed projects. There
are specific laws that prohibit any type of pay-if-paid
Arbitration – a legally binding
method of dispute resolution that is conducted outside
the court system. It is believed that it allows you
to resolve disputes more quickly and cheaply than by
going to court. There are specific rules that are followed
and instead of judges and juries, there will be an arbitrator
or a panel of arbitrators that decide the dispute.
Changed Conditions- When the jobsite
conditions have changed since the contract was awarded.
Differing site conditions – Actual
site conditions are not the same as described at the
time the contract was awarded. Similar to changed conditions
with the exception that nothing may have changed, and
it is often the obligation of the contractor to confirm
site conditions prior to entering into a contract, despite
how the jobsite is described in the plans and specifications.
Extra work- Extra work is work that
the contract does not specify. It can be difficult to
decide whether work performed was part of the contract
or completely separate tasks. There are often specific
procedures in contracts that must be followed in order
to receive credit for extra work.
Changes-Change orders are common in
construction and there are usually specific procedures
in contracts that must be followed in order to receive
credit for change order work.
Scope of work-disputes specifically
related to the ambiguities or discrepancies found in
contract terms and conditions related to the tasks contracted
Bidding disputes - most often appear
in public works contracting bids. Typical disputes arise
from bidding errors, lack of responsiveness, responsibility,
second low bidder. There are specific procedures that
must be followed. In public works projects, it may require
filing suit as part of the bid protest process.
Delay claims-the additional costs
to a party when a project experiences unexpected delays.
The difficulty is in proving who actually caused the
delay, whether the delay was on the critical path, and
how much it actually cost the affected parties.
Defects- When work is not performed
to trade standards, there is a cost associated with
bringing the work up to trade standards and repairing
any other damage caused by the defect.
Bond/surety claims- in most cases,
by the time a claim on the bond is considered, the project
is in serious trouble. We hope projects will go without
a hitch, but sometimes things go wrong. That is one
of the reasons owners bond their projects - to have
someone to turn to when the contractor gets into trouble.
The other reason is to have an independent third party,
a surety, verify that the contractor is, in fact, qualified
to perform the job. The surety evaluates the ability
of the prospective contractor to confirm if they are
able to complete the project. This is a guarantee to
the owner that the project will be completed.
Business formations- There are certain
business entities that contractors may conduct business
as, such as a sole proprietor, partnership or corporation.
There are also other business types that are prohibited
from doing business as a licensed contractor. There
are also numerous legal details unique to contractors’
licenses when it comes to buy and selling a business.
Private works-any projects that are
funded by private or corporation money for the use and
benefit of private owners.
Public works- projects that are funded
with public money, constructed by the government such
as a municipality, the State or Federal government and
for the public good. Examples would be highways, dams,
Prevailing wages Almost all public
works construction projects are required by the Davis
Bacon Act to pay all workers who work on the public
works project the prevailing wage in the local area.
This wage typically approximates the local union scale
for the particular trade. This rate is usually much
higher than the wages paid for private works.
CSLB hearings-Contractors are governed
by the Contractors State License Board, and one of their
roles is to investigate disputes or allegations of contractor
misconduct. The CSLB has the power to revoke a contractor’s
license based their finding of a violation of contractors’
laws, regulations and standards governing construction.
Liquidated damages –damages
are said to be liquidated when the amount of damages
recoverable in the event of a specified breach is agreed
at the date of the contract. A liquidated damages provision
will be included in the contract. When damages are not
predetermined/assessed in advance then the amount recoverable
is said to be 'at large' (to be agreed or determined
by a court or tribunal in the event of breach).
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